NIGERIA – Economist at Renaissance Capital, Yvonne Mhango, has predicted that for the first time since 1H11, Nigerian consumer sentiment will be turning positive in 4Q14.
In a report made available to THISDAY, Mhango noted that lower interest rates, stronger economic growth, moderately looser spending as the 2015 elections draw nearer, and moderately higher oil output are positive for consumer sentiment.
Expressing concerns about the lack of trickle-down effect, Renaissance Capital stated that the Nigerian consumer will not reach its full potential while strong gross domestic product (GDP) growth does not translate into increased wealth at the bottom of the pyramid.
“We believe this is due to slow progress on infrastructure development, particularly with regard to power, and alleged corruption at some levels of government. Nigerian consumer companies reported disappointing 1H14 results across the board in terms of revenue growth and profitability.”
Mhango added that consumer confidence was eroded by the start of the rate-hike cycle in mid-2011; a 50 per cent petrol price hike in 1Q12 combined with the imposition of an effective 110 per cent import duty on processed rice, and increased electricity and other grain tariffs later in the year.
“However, we see consumer confidence turning positive in 4Q14 for the first time since 1H11”, Mhango added.
Renaissance Capital further noted that the 1H14 performances of consumer companies are a continuation of the downtrend they have witnessed since FY12.
“According to new data from the IMF, GDP growth dipped to 4.2 per cent in 2012 from 5.3 per cent in 2011. Aside from slower GDP growth there has been an increase in competition in the market.
According to Nestle Foods Nigeria (Nestle), the unrest knocked 5 per cent off potential revenue growth in 1H14 and price sensitivity of the consumer remains the key.
“In this challenging consumer environment, we prefer the more defensive consumer names in which we perceive the forecast risk to be lower.
Our top pick is Nestle Nigeria Plc, which has reported the most consistent profit growth over time, followed by GlaxoSmithKline Consumer Nigeria (GSK) Plc,”, the report added.